Remember when, 2008: Hart says much for meat industry to consider

| March 19, 2013 | 0 Comments
Reese Hart

Reese Hart

This series of articles looks back at the previous attempt to fix the problems facing the meat industry.

In 2008, the Meat Industry Action Group managed to get meat companies talking and get farmers active. Despite this nothing came of their efforts.

This series may just act as a reminder of what we as farmers have all heard before…

1 March 2008 — At the PPCS AGM in Duendin yesterday, outgoing Chairman Reese Hart made some interesting comments on the proposed Alliance Group mega merger in his address to shareholders.

(PPCS was re-branded to become Silver Fern Farms Ltd)

Mr Hart said:

Over the past two years there has been mounting concern about the low returns to sheepmeat producers and the competitiveness of the red meat sector in the face of alternative land uses, in particular dairy.

PPCS has given its support to the meat industry taskforce and its goal of seeking solutions for the industry.

We believe that the taskforce is complementary to parallel development of the proposed consolidated mega-meat company concept.

PPCS first signalled its willingness to participate in industry rationalisation and consolidation in 2006.

The launch of PPCS Supplier Investment Shares in October 2006 was for the very purpose of funding such industry change.

In 2006, we had started discussions with New Zealand’s other meat cooperative, Alliance Group, on the potential for restructuring the industry to achieve sustainable returns for farmers.

These halted in February 2007 only to be restarted by Alliance Group in June 2007 when PPCS and Alliance jointly commissioned PricewaterhouseCoopers to undertake an analysis.

 

In that round of discussion, the Board of PPCS concluded that the concept of a merger of the two co-operatives was compelling, and would have been in the interests of the long-term sustainability of the sheepmeat industry.

Regrettably, though Alliance Group signalled it supported a strong, merged single co-operative in the future, it gave no timeframe for when the concept would be advanced.

As a result, further discussion was deferred by Alliance Group in August 2007.

Six months later, Alliance Group returned to the question of industry structure once more with their proposal earlier this month for a megameat company.

PPCS has given its support in principle to advancing this latest proposal for industry consolidation – subject to seeing the detail, assessing the certainty of success, confirming the potential of the assumptions and finally ensuring PPCS shareholders have all the information required to make an informed decision, after healthy debate.

On that note it is worth highlighting some factors that must be discussed across the industry:

• In 1984, ANZCO was established by the then NZ Meat Producers’ Board with seed capital from meat producers in response to the then meat industry crisis.

• It is somewhat ironic that current New Zealand meat industry stakeholders will be buying back from private enterprise a business which was established by those who are now achieving unsustainable returns.

• The New Zealand Meat Board has a contingency fund of nearly $59 million, those reserves should now contribute to the restructuring of the industry for the benefit of all producers.

• Over-capacity is continuously blamed for industry woes, yet two of the likely benefactors of the Alliance concept, ANZCO and AFFCO, have both built new sheepmeat plants over the past five years.

• Alliance, the architect of the concept, has also built a new plant.

• Over that period PPCS has reduced capacity across its plants, by way of chain reductions and closures.

It has been PPCS’ consistent position to support any initiative where it would improve farmer returns.

As a farmer-owned co-operative, we have no interest in maintaining the status quo if change will provide improved returns to our suppliershareholders.

Yet, we are equally certain that the cost of industry reform cannot be borne disproportionately by PPCS shareholders.

For an industry consolidation plan to succeed and gain support, the factors mentioned before must be considered and the issues not all be laid at the doorstep of PPCS shareholders.

What we cannot do is have our focus and attention diverted from our own strategy while concepts with no certainty of the outcome are mooted.

PPCS must and will continue to implement our current business plan and introduce further initiatives that promote change in industry practice for the better.

To be clear, PPCS is absolutely supportive of developing any new model that improves the future of the New Zealand meat industry and supplier returns.

What is paramount is that industry reform brings about an improved business model for the industry that is market-led, is responsive to changing global demand and is future proof.

The concept for a single industry body accounting for 80 percent of New Zealand’s meat production must be carefully considered in this context.

The indication of an additional $15 per head return to farmers is indeed encouraging.

However there is much evidence that a considerable amount of that figure will be achieved in the coming season due to the reduction of supply, before any individual company strategies and cost reduction plans come into account.

It is therefore critical we do not jump into a structure that will be with us for the long term on the basis of returns which are unrelated to the new structure.

If that occurs, the concept will simply be challenged once it is out the honeymoon period.

Fonterra is a excellent example.

Having gained the benefits of scale and legislative support it is now being challenged by new entrants, is seeing fragmentation in supplier support and fragmentation in the market place and is on the verge of devolving to meat supply models, ironically involving a meat industry player.

All of these are good debating points.

It is clear however that farmer suppliers continue to be architects of their own destiny by supporting the latest Johnny-come-lately model, without considering the future ramifications.

Hence we urge PPCS shareholders to support your Board in its deliberations, to engage in the debate, but also be prepared to change.

Now is the time to flesh out the proposal which has been sketched in outline by Alliance.

Farmers, shareholders and the wider industry have expressed their desire to see detail added to the concept.

We therefore urge those companies which have expressed support for the proposal to come together and develop the concept in a structured and considered manner and in sufficient detail that meaningful consultation with farmers and the industry can begin.

We believe that the development of the concept must embrace all relevant parties with a stake in the eventual outcome.

That includes farmer-shareholders and political stakeholders.

The future profitability of the meat sector is too important a challenge to get wrong.

Our industry is responsible for $4.5 billion of New Zealand’s export earnings and provides the livelihoods for tens of thousands of livestock farmers and industry workers.

So let’s get together, get to work, and get on with it.

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